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Comment by kuyfiuyg | Hacker News Reader

I'm asking someone who is more knowledgeable than me on this topic. What would happen if you replace all (most) tax with VAT?

That would mean everywhere there is a real transaction, that generates greater value, that is where the tax is. It would also make it impossible for big companies to do tax evasion - since you limit the effects to the 'leaves' of the tree that is the economic system, you can catch the money before it escapes put the company 'tree' structure, out of the reach of the state.

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VAT is the most unjust tax there is. People with low income spend it on things like food, clothing, housing, entertainment, that are all subjected to VAT, whereas richer people have access to the stock market, investment, and tax lawyers, and pay relatively less VAT. VAT is effectively a degressive tax, if you leave only VAT then you accept a system where the poor pay for the rich.

However this is already the case in Europe because the VAT rate is so high. For example for France, tax revenue in 2014 was 74B€ of income tax, 39B€ of corporate tax, and 139B€ of VAT. I'm guessing this is a political game where you have to keep income tax high enough so that the inequalities are not too obvious.

You don't pay VAT on "essential goods", eg food, clothing, rent, etc.

Of course the rules are a bit fool about what is essential, and VAT is still a terribly regressive tax.

It depends on the country I guess, in France you do pay VAT on food (5.5%), clothing (20%), and for rent it depends on what you're renting but for most people you're right that they're probably exempt.

> What would happen if you replace all (most) tax with VAT?

The poor would pay considerably more of their income as tax than the rich.

And yes, there are ways to do tax evasion with VAT. There was a court case in the UK about whether Jaffa Cakes were a cake or a biscuit (because there are different VAT categories)

Then don't charge the poor for VAT.

Now you create an incentive for everyone to stay just below the limit of what counts as "poor" and have their actual assets in other countries and get it as loan from themselves.

How do you do that? What's the limit? Is it all or nothing, or a sliding scale? How is each and every shop suppose to know and keep track of if someone is in this category or not?

The issue with VAT is that as usually applied it is an extremely regressive tax. Poorer people spend a far higher proportion on their income on purchases that have VAT applied. If more categories of basic goods were zero-rated or exempt, or if other mechanisms were used to make the VAT burden less regressive, then it might be viable.

That's how most of Europe does VAT: food, cultural and other essential products enjoy a very reduced VAT rate in many (but not all) countries here[1].

[1] https://en.wikipedia.org/wiki/Value-added_tax#Tax_rates

There can still be VAT for things poor people buy. Is there chocolate on your biscuit? Then it's "luxury" and you have to pay VAT.

True, but at least the price label in the supermarket is the final price you pay, no nasty surprises at checkout. VAT is already included in the advertised price, so you know exactly how much you'll have to pay. Apparently, the same is not true of sales tax in (some states of?) the US.

It doesn't say the VAT rate on the label, but you can figure that out from your receipt after solving a bin packing problem :) Receipts contain a listing of the different VAT rates (e.g. in Germany, x€ at 19% and y€ at 7%)

> but at least the price label in the supermarket is the final price you pay, no nasty surprises at checkout

Er, that's how nearly everywhere does it. And is irrelevant to whether VAT or income tax should be the main way to raise money

That is just bullshit. Why books or "revenues from artistic works" has 10% but oil 50% VAT? Most people need heating oil more than paintings.

It's a matter of social policy. If you want to encourage more artistry one of the available ways is reducing taxes on it.

If someone is against it they're most welcome to vote against it.

So reduced VAT is not for 'essential' stuff.

The FairTax proposal in the US addressed this with a "prebate" that was mailed out to every person (not sure the criteria) at the beginning of the year. This was a check that covered the taxes on base (poverty?) level spending. This was meant to remove the regressive taxation effect.

Nice in theory. In practice how many really poor people have address, or bank accounts which they can use to lodge it?

I believe that's the US proposed FairTax, isn't it?

https://en.wikipedia.org/wiki/FairTax

>What would happen if you replace all (most) tax with VAT?

I'd imagine a large number of people would form sole-trader companies and put every last expense possible through it.

A boon for accountants!

Part of the problem though is that most businesses pass VAT tax on to consumers. Meaning that VAT tax essentially allows businesses to get their customers to foot the tax bill, and that everyone pays taxes corresponding to their consumption instead of their income. Usually you want the lowest earners not to have to pay much (if anything) in taxes, and VAT taxes don't allow for that.

I'd prefer taxation on land value, property, and especially a property tax on valuable IP.

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